AUGUST 2012 BAD FAITH CASES: COURT VIEWS BAD FAITH CLAIM AS SEPARATE FROM BREACH OF CONTRACT CLAIM ON BASIS OF DUTY TO INVESTIGATE EVEN IF NO COVERAGE DUE UNDER CONTRACT (Philadelphia Federal)

In Gold v. State Farm Fire & Cas. Co., the court heard a carrier’s motion to dismiss its insureds’ complaint for breach of contract and bad faith. The case arose out of two claims for benefits that the insureds’ filed after their home suffered water damage in 2009 and 2010. After the 2009 occurrence, the insureds’ spoke to the carrier’s agent, who allegedly misrepresented the nature of the damage by inaccurately reporting in her claims notes that the water was coming through the basement walls. The insureds’ claimed that they told the carrier’s agent that water was seeping through the floor.
Based on the subsurface water exclusion in the insureds’ policy, the carrier denied coverage. The court noted that discovery revealed the carrier made this decision in “twelve minutes.” In 2010, the insureds filed another claim for benefits when a second floor occurred. After a series of tests and inspections to the insureds’ home that revealed slightly differing causes of water infiltration, the insureds filed suit against the carrier for breach of contract and bad faith.
First, the court rejected the insureds’ breach of contract claim, granting summary judgment to the carrier. It reasoned that the insureds failed to show a dispute of fact with respect to the cause of the water damage. Rather, the carrier presented sufficient evidence that the cause of the damage was due to subsurface water infiltration, an occurrence that fits the policy’s exclusionary language.
Second, the court examined the insureds’ bad faith claim. The carrier argued that, since the court granted its motion on the insureds’ breach of contract count, it should also grant the motion on the bad faith claims. The court disagreed, ruling that the bad faith claims are severable in this instance because the allegations arise from the carrier’s failure to conduct a proper investigation.
The court only permitted the insureds’ bad faith claim to proceed to trial with respect to the 2009 investigation, however, because there was no evidence that the carrier acted in bad faith in denying the 2010 water damage claim.
Date of Decision: July 23, 2012
Gold v. State Farm Fire & Cas. Co., No. 11-1187, 2012 U.S. Dist. LEXIS 102470, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. July 23, 2012) (McLaughlin, J.)